Bart Reed | Stoel Rives
Top Ten legal issues to consider on data center construction projects.
Data center construction presents a distinct set of legal challenges that go well beyond traditional commercial or industrial projects. The combination of sophisticated technical requirements, compressed schedules, and high financial stakes places intense pressure on construction contracts and project administration. For project participants, careful attention to construction law issues is essential to manage risk and preserve schedule and cost certainty.
Below are some of the most critical, and highly negotiated and litigated, issues that commonly arise on data center projects.
1. DELIVERY METHOD SELECTION AND CONTRACTING STRUCTURE
Data centers frequently use non-traditional delivery models, including design-build, CM at risk, hybrid GMP structures, and early contractor involvement arrangements. From a legal standpoint, these models raise recurring issues such as:
- Allocation of design responsibility and standard of care
- Reliance on bridging documents and performance specifications
- Risk transfer for constructability and integration challenges
Courts closely scrutinize contract language allocating design and construction risk, particularly where owners seek to impose performance obligations that exceed traditional design liability.
2. PERFORMANCE BASED SPECIFICATIONS AND STANDARD OF CARE
Unlike conventional buildings, data centers are typically governed by performance based criteria — uptime, redundancy, cooling thresholds, and failover capability. Construction contracts must carefully address:
- Whether performance criteria constitute warranties or design standards
- The interface between design professionals’ standard of care and contractor performance obligations
- Remedies for failure to meet functional requirements
Poorly drafted performance provisions can shift unintended risk to contractors or create disputes over whether failures stem from design defects or construction execution.
3. SCHEDULE RISK, DELAY AND ACCELERATION CLAIMS
Schedule certainty is paramount in data center projects, where delays can have cascading commercial impacts and affect timely delivery and revenue generation. Common construction law issues include:
- Concurrent delay analysis
- Enforceability and calculation of liquidated damages under applicable law
- Constructive acceleration claims when owners resist time extensions
Contracts must be internally consistent and supported by realistic schedules to withstand scrutiny in the event delays arise that threaten the projected and expected completion of the project.
4. LONG LEAD EQUIPMENT PROCUREMENT AND INTEGRATION RISK
Data center projects depend on specialized equipment such as generators, switchgear, UPS systems, and cooling infrastructure. Legal disputes frequently arise over:
- Responsibility for procurement versus installation
- Risk of delay due to manufacturer lead times
- Title transfer, storage, and damage risk
Construction contracts must clearly align procurement obligations with schedule requirements to avoid gaps that lead to claims and finger pointing. This is particularly important when confronted with efforts to mitigate schedule delivery or delay risks when seeking to procure owner-furnished contractor-installed (OFCI) or contractor-furnished contractor-installed (CFCI) equipment.
5. COMMISSIONING, INTEGRATED SYSTEMS TESTING AND SUBSTANTIAL COMPLETION
Commissioning is one of the most common sources of disputes in data center construction. Key legal issues include:
- Defining substantial completion versus operational readiness
- Responsibility for integrated systems testing (IST)
- Allocation of risk for failures detected during testing
Absent precise contractual definitions, parties often disagree over whether a facility is complete for payment, occupancy, or liquidated damages purposes.
6. CHANGES, ALLOWANCES AND SCOPE DEFINITION
Given the evolving nature of technology requirements, scope changes are common. Legal issues arise here around:
- Differentiating owner driven changes from design development
- Pricing changes under GMP contracts
- Managing allowances for equipment and systems not fully specified at contract execution
Courts, particularly those in Washington, look closely at change order procedures and notice requirements, making disciplined contract administration essential.
7. LIQUIDATED DAMAGES AND WAIVER OF CONSEQUENTIAL DAMAGES
Data center contracts often include significant liquidated damages tied to missed milestones or delay in commissioning. From a legal perspective:
- Liquidated damages must reasonably estimate anticipated harm to be enforceable
- Waivers of consequential damages must align with liquidated damages regimes
- Overlapping remedies can create ambiguity and disputes
Poor coordination between these provisions can expose parties to unanticipated liability.
8. LABOR, PREVAILING WAGE AND WORKFORCE COMPLIANCE
Legal risks on data center projects frequently include labor compliance issues, particularly where public utilities, incentives, or public entities are involved. Key issues include:
- Applicability of prevailing wage laws
- Compliance with apprentice utilization requirements
- Exposure arising from subcontractor misclassification
Labor disputes or audits can quickly disrupt construction if not addressed contractually at the outset.
9. SAFETY OBLIGATIONS AND SITE CONTROL
Data center construction sites typically involve heightened safety and security requirements. Legal issues include:
- Allocation of safety responsibility between owner, GC, and subcontractors
- Compliance with Washington’s Industrial Safety and Health Act (WISHA)
- Exposure arising from owner imposed site controls
Courts carefully evaluate contractual safety provisions when assessing liability following site incidents.
10. WARRANTY, LATENT DEFECTS AND POST COMPLETION REMEDIES
Because data centers must perform continuously, post completion failures can result in immediate disputes. Construction law considerations include:
- Duration and scope of express warranties
- Interaction between warranty obligations and the state’s applicable statute of repose
- Responsibility for latent defects discovered during operations
Well drafted warranty and dispute resolution provisions are essential to managing post completion risk.
Data center construction presents a convergence of technical complexity and heightened legal exposure. For owners, developers, and contractors alike, success depends on construction contracts that precisely allocate risk, define performance expectations, and reflect the realities of commissioning and long lead procurement.
By focusing early on construction law issues — delivery method, performance criteria, schedule enforcement, and post completion remedies — project participants can materially reduce the likelihood of disputes and protect both schedule and revenue critical outcomes.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.